COLUMBIA – A much-ballyhooed Republican income tax plan is in trouble in the South Carolina House, where nine co-sponsors withdrew their support last week after an analysis showed the proposal would raise taxes on most taxpayers. Meanwhile, the powerful Ways and Means Committee on Thursday delayed a vote on the measure.
“Once again, the South Carolina supermajority is advocating for a policy that does more harm than good for the people of South Carolina. The GOP’s tax proposal, H.4216, primarily benefits those with the highest incomes,” said House Rep. Annie McDaniel. “This initial version of the SC flat tax bill is detrimental to both the state’s revenue and the financial well-being of our citizens. Reconsideration would be wise. It imposes more taxes on those with lower incomes while reducing the tax burden on higher earners, who already enjoy greater benefits.”
“This flat tax proposal mirrors the actions of our federal government, fostering selfishness, confusion, chaos, and bigotry. Legislation like this, pushed by our elected majority, is driven more by greed than by a genuine concern for the average citizens they represent,” McDaniel said.
The bill’s apparent collapse, at least in its current form, came just eight days after state GOP leaders, including Gov. Henry McMaster and leaders of the S.C. House and Senate, unveiled the legislation at a high-profile March 26 news conference.
The measure, they said at the time, would give S.C. residents a historic tax cut by lowering the state’s top income tax rate from 6.2% to a 3.99% flat tax for all – with the possibility of it going lower depending on the state’s growth.
“Everybody should pay something,” House Ways and Means Chairman Bruce Bannister (R-Greenville) said then. “And that’s the beauty of a flat rate — those whose pay is lower will pay less in taxes and those who earn more will pay more.”
But on April 1, a bombshell report from the state’s Revenue and Fiscal Affairs Office revealed the plan would raise taxes on the vast majority of Palmetto State residents earning less than $120,000 a year.
For instance, based on numbers in the report, a teacher or warehouse worker making $50,000 a year likely would get socked with a $600 tax increase. A marketing manager or HVAC technician making $75,000 would see their taxes rise by $800.
Members of the S.C. Freedom Caucus, a hard right faction in the S.C. House that often battles with the body’s establishment GOP leaders, were quick to pounce.
“Republican leadership wants more of your money and are attempting to fool you into believing they are lowering your taxes,” the caucus said in a March 31 statement. “Call your Rep now and tell them to actually cut taxes and help the middle class!”
State Democrats, happy to have the chance to label S.C. Republicans as the party of tax and spend, were even more caustic, with one telling the Charleston City Paper that the so-called “tax cut” reminded them of an old S.C. saying:
“Figures don’t lie, but liars figure.”
How we got here
As the City Paper reported in early January, a broad-based tax increase was always the likeliest outcome of the GOP’s pledge to flatten the tax code this legislative session.
The reason? Despite a top income tax rate of 6.2%, the average South Carolinian only pays 2.9% after the state’s generous standard deduction. More than 40% of taxpayers pay no income tax at all thanks to the way the tax code is written.
In the story, Neva Butkus, a tax policy analyst with the Institute on Taxation and Economic Policy in Washington, D.C., noted taxes have tended to go up for most residents in states with flatter tax codes.
“Since 2021, about half the states in the country have ‘cut’ income taxes,” Butkus told the City Paper. “And they eventually have to pay for that with something. Usually, raising or expanding sales taxes and fees or kicking responsibilities down to the locals, all of which ask more of lower- and middle-income families.”
Here in South Carolina, the tax-increase mechanism is different. Rather than openly raising sales taxes or fees, the state GOP plan quietly eliminates the current standard deduction — the very thing that keeps taxes low for most residents.
And the result is exactly what Butkus predicted in January: Bigger bills for the average taxpayer.
Nevertheless, some GOP House members were still defending the plan as late as Tuesday, arguing that a flat income tax was the only alternative to democratic socialism.
“Once again the S.C. Freedom Caucus is joining forces with Bernie Sanders and Democrats to redistribute wealth instead of offering historic tax reform,” Rep. Brandon Guffey (R-York) said in a social media post.
But Freedom Caucus Rep. April Cromer (R-Anderson) ignored the ideology and kept pounding the numbers, noting again that the leadership tax cut was actually a tax hike for most.
“That’s not just misleading, it’s unacceptable,” Cromer said. “It is unthinkable that any conservative would support a plan that increases taxes on hardworking families.”
What’s next
At week’s Ways and Means meeting, Bannister and bill sponsor Rep. Brandon Newton (R-Lancaster) said they needed more time to revise the bill before forwarding it to the full House.
“We don’t think it’s right to vote the bill out at this time but instead to make sure we know exactly what we’re doing before we pass a bill to the floor and then try to amend it,” Newton said.
But those changes would have to be significant to win the support of skeptical Freedom Caucus members, according to caucus chair Rep. Jordan Pace (R-Berkeley), who says his members want to see tax cuts offset by spending cuts.
“Raising taxes on one group to cut taxes on another is morally bad and economically stupid,” Pace told Statehouse Report after the committee hearing. “By taking $500 to $700 dollars away [from working people] and giving it to people at the top end of the earning spectrum, you’re actually removing a giant chunk of money from the economy and reducing economic activity.”
Regarding the plan’s seeming collapse, Pace pins the blame squarely on party leaders.
“I don’t think a lot of my colleagues who signed onto the bill and were at that press conference knew what was in the bill,” he said. “I think leadership, intentionally or not, pulled the wool over members’ eyes, and now they’re getting their comeuppance.”
